TV Everywhere, or Cable PC?

Don’t you love a good, catchy, phrase to describe a business initiative? The one being used by several major cable MSOs to describe a service being tested for future consideration is more hyperbole than fact. The initiative they propose is to place cable programming inside a “walled garden” (heard that phrase in the early 90’s) on the internet on sites owned and operated by the cable MSOs for viewing by only those persons who are already cable subscribers. This does not include the content of the broadcast networks (ABC, NBC, FOX, CBS, etc) as much of this is already accessible on free sites on the internet (HuLu, TV.com, etc). The word “everywhere” implies a omnipresence, like the oxygen we breath. Its something that should be available to anyone, anywhere, anytime, for free. This is just not the case in what is being proposed by the Cable MSOs, especially Time Warner and Comcast. Simply put, any service that requires a conditional access system is not free, ubiquitous or “everywhere”. Its behind a wall, in a protected environment, where one is required to pay for the service. Its an extension of programming owned by the cable companies for viewing over their broadband systems. Its no different than the current cable service in one’s home, you’d just watch the shows on your computer rather than your TV. So let’s call TV Everywhere what it really is, Cable PC.

The cable companies have the right to do this as, if you follow the money, the major media and cable companies own, in hole or in conjunction with one another, many of the cable channels that are on your cable system. Universal, Disney, Viacom, Time Warner and Comcast own stakes in virtually every cable channel. The business model for these channels generates a considerable amount of money in advertising and affiliate fees, so its in the best interest of the owners/operators to protect their revenue stream and to learn from the mistakes the music industry made that has eroded their business. I guess I am just galled that they use the word “everywhere” to describe this new service. Everywhere would be if I had a device in my hands that, no matter where I am - home, train, plane, car, beach, Pete’s Bowl - I could watch a program. With TV Everywhere I can not. The broadcast networks, using their digital TV spectrum, or Qualcomm’s FloTV, might be able to provide this service. The Cable companies can not.

And, let’s face it, did you really know, or care, that Love Monkey, the Tom Cavanaugh series that was dropped by NBC after 5 or 6 episodes (that may be generous) is now on Universal HD and may be placed behind this wall? Just goes to show that 700 channels is too much. Is someone missing the forest for the trees?

Twitter + Investors = $255M Valuation. Huh??

Twitter is all the rage, but I am confused. Not by how to use Twitter, but how theoretically intelligent people can invest a total of $55M, at a perceived valuation of $255M, in a company that has no business model, no revenue streams and that has a retention rate of close to 60% after 60 days, meaning 40% of the users do not come back. Huh? Is there fear of missing a 10X ROI or the next Google? That wouldn’t be true as Google came out of the box with a business model. I’ve read and reread recent articles in the WSJ and the NY Times. I watched an interview with Evan Williams on CNBC from the All Things Digital conference. The founders openly admit they have no business model, although they have a couple of ideas. They admit they have interviewed business oriented types but have “turned most of them down”. They offer that their plans for the future include managing growth and focusing on a new homepage. Huh? My work with Venture Capitalists, Private Investors, new ventures and corporations relied on several items to start an investment conversation. Top priorities have always been a sound business model, a proven management team and exit strategy that returned value to the investors. Most investors also look for the product or service to provide unique value to the target market, whether the service solves a problem, creates an efficiency, reduces costs of an existing operation - there has to be something truly unique that offers differentiation from an existing practice, or a disruption in an existing paradigm. Does Twitter do any of this? Can’t I broadcast via text message, email or even on Facebook what I am doing, where I am located, or what I am seeing? Where is the differentiation? Many mobile apps are available that let me do these things. The one apparent difference is that I have to sign up to follow someone on Twitter - a person, group, product, event, company - who might otherwise not know that I am interested. I could poll people and receive instant replies from my “followers”, as David Pogue has done during speaking engagements. I’m sure there are other uses, but are they clear differentiators that could drive a viable business model, the current valuation and a perception of a sale of close to $1.0B? Does anyone remember Broadcast.com? Sold for $4.0B to Yahoo! and made Mark Cuban rich. How’d that work out for Yahoo!?

My other concern is that smart people in large corporations are already figuring out ways to use this FREE tool in their marketing campaigns to drive incremental revenue, market share and to develop loyalty programs for their products and services. Is the cart before the horse? If these folks figure out how to make money off of Twitter before Twitter figures out how to charge them for use of the service, can Twitter shut off the spigot and then ask to be paid for business models created by others?

Look, I’m sure the smart folks who have invested in Twitter have more information about the company and potential business models than the general public, but it sure doesn’t appear that way from interviews. They obviously have done their due diligence and vetting before making an investment, and had their number crunchers pick apart whatever financial models they were provided by Twitter. I also suppose they are sitting in Board meetings offering guidance to the founders and direction on building the company.

Perhaps the most valuable information is what Twitter stores on its servers from the Tweets of its users that can be parsed in ways akin to what Google does to generate very targeted advertising campaigns. And therein may lie the answer to the business model conundrum. Hmmmmm.

Deal or...Not so Much

I've taken my time to study, and to try to comprehend, the deal the Government is pushing to revive Chrysler from bankruptcy.  Its not the classic deal one would see negotiated between heavy weights, like John Malone or John Chambers, one that would create a significant return on investment or entry into a new market.  Plain and simple, when you cut through the muck, its a deal being sculpted to pander to a constituency that helped elect the current President.  If you are a citizen of the USA whose tax dollars were invested in Chrysler you have received a pathetic return on your recent investment.  Let me explain. The deal being crafted gives the Union, or a Trust on its behalf, 55% the new company and 1 board seat.  This equity stake is, theoretically, to be used to fund an underfunded pension plan for existing and retired workers.  The citizens of the USA, via their goverment appointed negotiators, will receive 8% of the company, will be asked to eventually invest another $6B + or - and will appoint 4 Board members.  And thanks for the initial $6B you invested, its now gone.  The Canadian government will invest $1.4B in the new Chrysler, will appoint 1 Board member and require that 20% of the production stays in Canada.  So far, of the 9 Board seats, two governments and the union will appoint 5 members, or a majority.  Are you seeing the light?  And, best of all, and perhaps the saviest deal maker at the table, Fiat will invest $0, thats rights $0, will "transfer technology" for the development of fuel efficient autos and will manage the business.  Let's see, I put no money in, I use my company's technology to attempt to expand my business into the USA and Canada, I get to run the company, AND I eventually can own up to 33% of the entity if it succeeds?  Where do I sign?  How much Chianti or Sangiovese was served during these discussions?  By the way, how profitable has Fiat been in its existing markets competing against the likes of BMW, Mercedes Benz, Toyota and other global automobile manufacturers?  And why did none of these other companies want a piece of this action?  Ask the Chairman of Damler Benz, who couldn't sell Chysler fast enough.

Fast forward to the labor negotiations.  The entity that owns 55% of the company will negotiate against itself?  How do you think they might turn out? 

If my recollection of GAAP accounting serves me correctly if an entity owns more than 19.99% of a business it must be reported in the investments section of its financials.  If it owns more than 50% of the entity its a subsidiary that has to be included in the consolidated financial statements.  Thus, the UAW will consolidate Chrysler's results into its own financial statements?  How will that work? Will it show an elimination for the union dues paid by Chrysler workers that account for all of its revenues?

This deal, plain and simple, is not so much a deal as it is an edict from the current administration to structure the business for the most benefit to the union and its members.  You, American taxpayers, got a bad deal.  You received no return on your initial investment ("we all must share the pain") and the existing bankruptcy laws of this country were usurped to create the structure that is now being proposed for Chrysler.  Lawsuits from previous senior creditors have already been filed.

Were the same considerations given to the Steel industry?  The Airline industry?  These proud USA industries, which had similar uncompetitive cost structures and employee benefit packages as the auto industry, were forced into bankruptcy court to sort out their outdated business models and cost structures.  They exited and survived to fight another day.  I have my doubts the deal being structured by the governement will allow Chrysler to do the same.  And you can bet if the company finds itself in financial distress your hard earned tax dollars will be used once again to save a dinosaur from extinction.

Cablevision's Deceptive Business Practices

I live in SW CT where my only option for cable TV service is through Cablevision.  I have a friend with connections to a senior executive at Verizon FiOS who confirms my residence is unable to subscribe to their service at this time.  Too bad.  I'd be on the phone in a second after the latest attempt by Cablevision to wring yet more dollars out of their existing subscriber base.  I believe they call this "monetization".  You see, I woke today to find 16 cable channels removed from Family Cable package to which I subscribe.  Only a brief note on my most recent cable bill indicated this would occur.  I visited the Cablevision web site to search for any information about this action but nothing was listed on the home page, or anywhere else of logic for that matter.  It was only when I clicked on the Customer Service tab AND searched on the proper phrase that my query was answered.  Cablevision is "removing the duplicate analog feed of select channels. While these channels will remain in your current package, they require a digital cable box or CableCARD-equipped device to receive them on your television*".  Notice the asterick?  This takes you to the fine print that states you have to pay additional monthly fees for the digital cable box or a cable card, assuming your TV is cable card ready.  All in the name of adding more HD channels and "monetization".

I'm a digital savvy guy who has an HDTV with an HD Cable box, but I also have several analog TVs in other rooms in my home.  And I understand why Cablevision might wish to take these steps.  Why transmit duplicate channels and incur incremental costs to do so?  But as a consumer I have entered a contract with Cablevision for a certain service package.  That package does NOT state that I have to have a digital cable box or a cable card to receive analog signals on my "low tech" TVs.  It simply states the channels that are delivered to my home for a specific fee per month.  These channels are no longer available, hence Cablevision has broken the contract.  Should I still be required to pay a fee for services that are no longer rendered or provided?  I am still being billed for a cable programming package that includes almost 50% of the channels to which I originally subscribed for my analog TVs.  The message from Cablevision is clear.  Upgrade or else.

Its like going to the supermarket to buy your favorite item.  When you get there you notice the packaging has been changed but hope that, inside, the content is the same.  But something looks different.  While the package may be the same size, or slightly less, something has changed.  One glance at the weight tells the story.  The manufacturer has put less in the box, fancied up the packaging and kept the price the same.  It called a price increase folks.  Less product for the same amount.  This is EXACTLY what Cablevision is doing to its analog cable subscribers.  The "package" offers less but is the same monthly price.  The message is clear.  One way or another, if you remain a Cablevision customer, you are going to pay more for your cable programming service.  Its taking steps to move customers from the analog system, slowly but surely.  But the method they are using will surely drive a large percentage of these customers to alternative services.  While the number of TVs per household is still around 3, I doubt all of these TVs are digital or cable card ready.  I'm a business guy so I understand the simple economics of this transition.  I just hate the way Cablevision is going about it.  Its sneaky and deceptive.  FiOS can't get here fast enough for me. 

Online Video - The Demise of the MSO?

My wife and I were traveling recently and enjoyed the confines of a friend's home at our destination.  Prior to departure I asked if the home was WiFi enabled so we could communicate with the outside world and was informed yes, indeed the house had WiFi, but no Cable TV.  Being "newsers" my wife and I were at first a little perplexed but instantly realized we could use the wireless connection and our laptop to keep up with the daily goings on from our home region (NYC) and nationally.  We just happened to have departed JFK airport on January 15th, in a snow storm.  We made it out, after deicing, without a hitch.  Flight 1549 from LaGuardia ended up in the Hudson River a few hours later. As we drove through the Rocky Mtns to our destination the local NPR affiliate relayed the tragic events that led to Flight 1549 landing in the Hudson.  We both fully expected to hear there were no survivors and were amazed to find everyone was rescued and safe.  Fast forward to the home where we would spend the next few days.  We immediately fired up the computer to look for video of the flight, new stories of the incident or any other information available.  While we could not find live streaming from the the West Side of Manhattan we were able to locate interviews from the local and national news outlets and many video segments the next day from all of the major morning TV shows.  Who needs cable?  We realized we didn't.  We took this a step further during our stay and were able to find episodes of some of our favorite shows, many of which we had recorded on our DVR prior to departure.  In our downtime we were able to keep abreast of not only the tragic events of Flight 1549 but the routines of our weekly life. 

Given this I can see why the Cable MSOs are anxious to stike deals with the major cable programming entities to limit the online distribution of their content to the MSOs online platforms, for which only paying Cable Subscribers would be able to access.  A recent Nielsen Online report indicated that more than 136 MILLION people watched online video content in January of this year.  That's about 45% of the total population of the USA.  45%!  Can you imagine why the Cable MSOs are interested in striking this deal?  If they don't and all video content migrates to a free online platforms, as many Broadcast TV shows already have, what's the incentive for consumers to keep their cable TV subscription?  The MSO becomes just another network operator with no value-added video service and would compete with other broadband providers on price for a consumer's broadband connection.  This begins round 2, or 3, of the consolidation of the the major network operators, akin to what happened in the early 90's. 

Perhaps one business model for the MSO could be as a content "warehouse" for content developers and programmers.  These creative types are not in the business of content distribution and would look for an aggregator to distribute content.  Think Movielink.  Movie studios are not in the business of movie distribution.  That's why companies like Deluxe and Panavision exist, and why other companies are taking the lead in Digital Cinema initiatives.  Its not farfetched that this could happen, hence the discussions that are underway between the MSOs and the major Cable Programming companies.  Its really just the next step in the evolution of the distribution of programming content for the MSOs.  Given the Cable MSOs paid the cable programmers in excess of $22.5B in subscription fees in 2008, as reported in the WSJ, the MSOs do have some leverage in the discussions.  In the meantime I'm happy to be able to access FREE video content from broadcasters regardless of my location.

Kudos to Sully and the rest of the US Airways team for putting that bird safely in the water, and to the first responders for getting everyone out.

Echo Vs Liberty - and for what?

Don't you just love a good chess match between corporate titans?  We are witnessing just this as Sirius XM scrambles to strike a deal (announced today) to save it from a) bankruptcy and b) Charlie Ergen of Echostar fame.  I love when oversized egos go toe to toe, making tactical moves to gain control over a "prized" asset, one in this case whose future value has yet to be determined. In one corner is Charlie Ergen, head of the Echostar/Dish empire who was recently rebuffed by media mogul Mel Karmazin in an overture to merge their two entities.  In the other corner, invited to the match by the aforementioned Mr. Karmazin, is John Malone, ruler of the Liberty Media array of corporations.  I was impressed by Mr. Ergen's initial move after being rebuffed, buying $175M of Sirius XM debt that was due to mature today.  In the end he either gets his investment returned or control of Sirius XM should they file for bankruptcy.  Not to be outmaneuvered Mr. Karmazin invites Liberty Media to the table and consummates a deal that keeps him in control of a company, for now, about whom he once was quoted as asking "how many people are interested in buying this service?".  How one's tune changes when they are given control of the company and subsequently invest $21M of their own money in the business.  This maneuvering only solves Mr. Karmazin's problem temporarily as yet another tranche of debt, approximately $350M, is due later this year.  And I ask, for what?

Perhaps the attraction for Liberty, and Echostar initially, is the value of the underlying assets.  But the satellite radio business as a going concern is suspect.  The business model's main vehicle for growth is the installation of the Sirius XM systems in automobiles by the factory, and the subsequent sale of the service by the automobile dealer.  This is an industry that is on Government life support at the moment and whose business model has its own issues.  Speculation is that either of the Satellite DBS systems could use the satellite and ground assets of Sirius XM to distribute digital content to a variety of environments, like autos, trains, or homes, and to portable devices.  I suggest the person responsible for this business model speak with the MediaFLO folks at Qualcomm and ask how that's going.  And other industries, including the traditional TV Broadcasters, are chomping at the bit to use their multi million dollar investments in digital broadcast assets to use excess capacity to distribute digital content to, you guessed it, portable devices and mobile environments.  This field will be crowded without a sound business model yet to be developed.

All of these machinations may feed large egos, but in the end the only value may be in the orbiting satellites and ground stations, which are probably worth much less than the $3.5B in debt on Sirus XM's balance sheet.  Or its just a way for guys with lots of money to poke their adversaries in the eye and claim, for now, checkmate!